US, Europe, Japan Planned Dollar Rescue

The United States, Europe and Japan planned to intervene to rescue the dollar when it was plunging in March at the time U.S. investment bank Bear Stearns collapsed, the Nikkei business newspaper reported.

Officials from the U.S. Treasury Department, Japan's Finance Ministry and the European Central Bank reportedly drew up a currency contingency plan over the weekend of March 15-16, the Nikkei reported, citing sources familiar with the situation.

The monetary officials also agreed on a framework for coordinating dollar-buying intervention, it said.

The officials did not specify an exchange rate for initiating the dollar rescue plan, but in the event of a free-fall they agreed to aggressively buy the greenback and sell yen [JPY-TN 109.01 -0.45 (-0.41%) ] and euros [EUR-TN 1.4778 0.0053 (+0.36%) ], according to the newspaper.

Analysts said even though a rescue never took place, the fact that global monetary officials had agreed on action would be important in the future if the dollar were to tumble again or other exchange rates move very sharply.

Under the intervention framework, Japan was to supply yen necessary for the underlying currency swaps. The plan also called for using a previously established swap mechanism between the United States and Europe.

No coordinated intervention took place, however, as the dollar began recovering shortly after U.S. authorities brokered the buyout of Bear Stearns by JPMorgan Chase [JPM 37.14 0.53 (+1.45%) ].

As measured by the U.S. dollar index, the currency hit bottom on March 17, the first market day following the announcement of the Bear Stearns deal. It tested those lows again in April and July, but is now nearly 9 percent stronger against the basket of major currencies included in the index.

A U.S. Treasury spokeswoman and the Federal Reserve declined to comment on the report. Japan's top financial diplomat, Naoyuki Shinohara, also said he had no comment.

Japanese Finance Minister Bunmei Ibuki told Reuters the nation's monetary authorities will decide how to deal with any sharp foreign exchange moves in the future based on economic fundamentals at the time.

A spokeswoman for the ECB said she had no immediate comment, but said the central bank would talk about the situation on Thursday morning.

"If anything, the fact that officials recognized the concern about the dollar's decline seems somewhat supportive for the dollar as maybe benign neglect was not so neglectful," said Marc Chandler, head of global FX strategy at Brown Brothers Harriman in New York.

"At the end of the day, however, President Bush is still set to be the first American president since at least the break-up of Bretton Woods that has not authorized intervention in the FX market, and given the recent price action the distinction looks relatively safe."

The United States, Europe and Japan have not intervened together in the currency market since September 2000. Japan's last intervention was in March 2004.

Didn't you read the article? They didn't intervene. They were going to, but the market corrected naturally on it's own. Please go ahead and short the dollar all you like. I'll be on the other side at this point.

i meant the fact they are going to intervene means they are worried about it becoming a big problem and historically central banks havent been able to do squat about a falling currency with their buying interventions.

so i meant if you are looking to short the dollar on this rally you should not be at all worried about this news...

so i meant if you are looking to short the dollar on this rally you should not be at all worried about this news...

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No, you shouldn't. But you SHOULD be worried that the market has turned direction on dollar shorts to such a degree that it represents a paradigm shift into the forseeable future, and they've done it without the Central Banks lifting a finger.

No, you shouldn't. But you SHOULD be worried that the market has turned direction on dollar shorts to such a degree that it represents a paradigm shift into the forseeable future, and they've done it without the Central Banks lifting a finger.

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And here I am thinking that China's lifting of it's dollar reserve banking requirement five times since March finally coupled with a holding/easing of European/Asian bank rates has vastly reduced US naked position.